“We want to believe, and we often get stuck and intertwine our belief with our identity…”

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Hi Michael,

Your podcasts, intertwined with my reading, keep bringing up ideas. One of the recent ideas is the topic of Type 1 vs Type 2 errors.

I was reading in (I think) “Thinking in Bets,” that we all have a ‘bias to believe.’ We want to believe, and we often get stuck and intertwine our belief with our identity.

The author describes our evolutionary heritage as a possible reason for our desire to believe. For example, if we hear some rustling in the bushes, it is in our interest to move or run, as it may be a Lion. If we don’t move or run, and it is a lion, we die, a type 1 error. Yet, if we don’t run, even if the odds are 1000:1, we are dead the last time, a type 2 error.

So it is good to be ‘safe,’ in this world.

In a recent podcast, discussing the Turtles, and investing: the concept of making type 1 errors was also ‘ok,’ but it is not good to make a type 2 error.

While the consequences are not a dire, a type 1 error, the downside can be addressed by: 1. limiting an investment amount/Kelly criterion, or having 2. stop losses. What we don’t want to miss is the Type 2 error, of missing the (potentially) unlimited upside–which we can’t predict, and don’t know when they will happen.

The insight that you described, along these lines, is that the APPEARANCE of safety, in the type1 scenario, leads to mediocrity or being average. WHILE the actual value, the actual living life, the actual big gains to be had, are NOT getting involved, thus making a type2 error. The error of Opportunity Cost, etc.

I really didn’t think that I would use these statistical definitions outside of a classroom, yet here it is… and this idea of type1 and type2 errors, and how to act once they are understood, now have real life.

I expect these ideas will now be part of my broader conversations, and actions.

Thanks for the podcasts,

(and I am one of your premium members of Trend following [Flagship]… still studying and learning)

Best,

Michael [name]

Thanks!

“I am trying to start my journey in Trend trading…”

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Hi Michael,

I came across your book through Steve Burns books as I am trying to start my journey in Trend trading and currently doing my research and learning to trade this way. My biggest challenge currently has been searching for the trends (screening for stocks) and then knowing how long to wait if the stock is not moving and i suppose when to sell (especially with weeks like these i.e. Trump/China Tarriffs week). I purchased your book through Audible and am really enjoying listening to it and learning about these traders/methods. I had heard you had done a movie in 2009 and I wanted to get also access through your website and also sign up for the interactive presentation mentioned in the book. I’m enclosing as you mentioned a copy of my my audible purchase history as a jpeg. It’s the third book down and I purchased this on May 8th through my Audible subscription. I’m currently trying to read and listen to a number of books and podcasts trying to get up to speed with these newer methods.

Sincerely,

Ray

Enjoy the video I just sent!

Ep. 763: Thales Teixeria Interview with Michael Covel on Trend Following Radio

Thales Teixeria
Thales Teixeria

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Based on eight years of research visiting dozens of startups, tech companies and incumbents, Harvard Business School professor Thales Teixeira shows how and why consumer industries are disrupted, and what established companies can do about it—while highlighting the specific strategies potential startups use to gain a competitive edge.

There is a pattern to digital disruption in an industry, whether the disruptor is Uber, Airbnb, Dollar Shave Club, Pillpack or one of countless other startups that have stolen large portions of market share from industry leaders, often in a matter of a few years.

As Teixeira makes clear, the nature of competition has fundamentally changed. Using innovative new business models, startups are stealing customers by breaking the links in how consumers discover, buy and use products and services. By decoupling the customer value chain, these startups, instead of taking on the Unilevers and Nikes, BMW’s and Sephoras of the world head on, peel away a piece of the consumer purchasing process. Birchbox offered women a new way to sample beauty products from a variety of companies from the convenience of their homes, without having to visit a store. Turo doesn’t compete with GM. Instead, it offers people the benefit of driving without having to own a car themselves.

Illustrated with vivid, indepth and exclusive accounts of both startups, and reigning incumbents like Best Buy and Comcast, as they struggle to respond, Unlocking the Customer Value Chain is an essential guide to demystifying how digital disruption takes place – and what companies can do to defend themselves.

In this episode of Trend Following Radio:

  • Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption

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“Biggest challenge: for me, picking up this book and starting from zero…”

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Respectfully, I’m sure you receive hundreds of mail and that this particular email will be met with a generic response or be hidden down under the multitude of responses you already receive. Either way, I admire you sincerely and this engaging request has caught my attention enough to give what I’m sure will result in a “too much information” response.

I have read all (currently in between various chapters of each of your books as I do enjoy the “flip and jump” nature of how you write) so this is directed towards the Michael Covel who I have come to appreciate in his writings.

A little personal history (its relevant I promise)…

I have studied undergrad and advanced graduate in the fields of Tax, Accounting and Corporate law, I am a Chartered Accountant and went on to work from intern to manager in a big four accounting firm for 8 years in 5 countries across the globe.

I mean when I say this, in no way do I mention this history proudly, I actually rather sheepishly admit this to you because I know based on your books that this will clearly highlight my biggest challenge I have faced with my trading. I have spent my entire learning life under the EMT and Fundamental analysis framework that it almost made me physically ill picking up a book on “Technical analysis” (which was vehemently rejected and crucified from all of my professors and managing partners). But the simple question I never asked was, why? and why did it keep coming up that those successful investors that I read about or studied were either directly or indirectly proponents of trend following.

I left the firm to begin “investing” which in reality was my attempt at analysing companies that showed significant weakness or strength on fundamental factors based on my own insight and experience. Identifying pricing ineffeciencies between my analysis and the market. Without humbling myself further, I think now we both agree that markets are irrational and are more than happy to remain that way regardless of what balance sheet, earnings or macro economic factors clearly uncover. I think the hardest thing was being right but no one else in the market thinking so…

Obvious humor aside, now pennyless (over dramatised, but that feeling is right there) I began my own research on what seemed so obvious before, why not flip the process by starting the analysis with the price (empirical) and identify its movement before the hours and weeks of endless fundamental back office analysis (or better yet without it whatsoever as it clearly means nothing to Mr. Market) “ahhhhhh so this is technical analysis…” so here we go…

Biggest challenge: for me, picking up this book and starting from zero…

Regardless of the response, I appreciate the question Michael.

Sincerely,
Bevan

In addition?

Start here. That will connect you to a ton of insights.

And make sure to read all of the links in my site nav bar.

Ep. 761: Amy Webb Interview with Michael Covel on Trend Following Radio

Amy Webb
Amy Webb

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Amy Webb is an American futurist, author and founder and CEO of the Future Today Institute. She is professor of strategic foresight at New York University’s Stern School of Business, and was a 2014-15 Visiting Nieman Fellow at Harvard University.

Her new book is “The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity.” It is a call-to-arms about the broken nature of artificial intelligence, and the powerful corporations that are turning the human-machine relationship on its head.

We like to think that we are in control of the future of “artificial” intelligence. The reality, though, is that we–the everyday people whose data powers AI–aren’t actually in control of anything. When, for example, we speak with Alexa, we contribute that data to a system we can’t see and have no input into–one largely free from regulation or oversight. The big nine corporations–Amazon, Google, Facebook, Tencent, Baidu, Alibaba, Microsoft, IBM and Apple–are the new gods of AI and are short-changing our futures to reap immediate financial gain.

In this book, Amy Webb reveals the pervasive, invisible ways in which the foundations of AI–the people working on the system, their motivations, the technology itself–is broken. Within our lifetimes, AI will, by design, begin to behave unpredictably, thinking and acting in ways which defy human logic. The big nine corporations may be inadvertently building and enabling vast arrays of intelligent systems that don’t share our motivations, desires, or hopes for the future of humanity.

In this episode of Trend Following Radio:

  • The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity

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